FX space fading somewhat - BMO Capital Markets

FXStreet (Guatemala) - Stephen Gallo, European Head of Currency Strategy at BMO Capital explained that due to geopolitical tensions, macro economic ‘divergence’ in FX has faded somewhat.

Key Quotes

"Key interest rate differentials have not reversed significantly, as earlier themes are still waiting to reassert themselves."

"But upside in US rates has ground to a halt. Basically, USD demand which had been driven primarily by favourable rate movements and data has probably been replaced by some ‘safe haven’ flow. The AUD was the main mover overnight amidst better turnover."

"Oil touched another set of new lows for the week, and this helped drag USD/CAD up during the London morning. The pair came within a whisker of 1.0940."

"Offsetting this rise, somewhat, are two factors. First, ‘risk-off’ has not intensified drastically as a result of Russia’s counter-sanctions."

"If it had, that would have been another positive for USD/CAD. Second, yesterday’s Canadian trade data seem to have had a meaningful impact on price action in the pair, and the willingness of some FX investors to sell CAD. The overall tone of the report suggested a lower sense of urgency as regards CAD weakness”.